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taxesAre you still reeling because you had to write a big tax check to Uncle Sam? Are you still elated because the government wrote one to you? Believe it or not, in both cases, something went wrong.

It's less of a shock to the system when the IRS is paying you, rather than the other way around, but ideally, you want to get as close to hitting the nail on the head as you can, so very little money changes hands come April 15. Why? Well, I think the downside of owing money to the IRS is pretty self explanatory.

But when it comes to refunds, a lot of people like getting that check in the mail every year. They count on it, and use it to wipe out debt, or buy a big purchase they've been putting off, or – I hope – boost their savings a bit. Financially speaking, though, getting a refund means you've given the IRS an interest-free loan. They've been sitting on your cash, when it could have been in your paycheck each month, keeping you out of debt in the first place, or in your savings or retirement account, earning a return on your investment.
This year, of course, has come and gone, so let's focus on next year. Here's how to keep things even:

Pinpoint the problem
Your HR or benefits department can help you do this, or you can ask your boss if you work for a small business. This year, the American Recovery and Reinvestment Act put more money in our pockets, and if your refund was small, it's likely the result of this act. In March, the White House announced that the average refund was up about 10% across the board, which is about $260.

If you owed money, or you got back a large refund, look at other culprits – a bonus that wasn't taxed, or an incorrect withholding. If you got a big refund, you were having too much withheld; if you owed money to the IRS, you weren't having enough withheld. The IRS has a helpful calculator on its website to help you do the math.

Do periodic assessments

Midway through the year, it's helpful to look at where you stand. Set a date on your calendar for July, and when it comes, sit down with your earnings information year-to-date. "Take your half-year information, and double how much you've had in earnings and what your withholdings are so far, and any other deductions on your tax return. That will help you project what your year-end information will look like. Then, if you need to, take your federal W-4 and adjust it," says Mark Steber, the chief tax officer for Jackson Hewitt Tax Service.

Make sure you also note any income you receive that hasn't been taxed, like a bonus, capital gains, or payment for freelance work. If you earn a great deal of untaxed income, you may want to increase your withholding so you're paying for it all along, rather than getting hit with a big bill at the end of the year.

Adjust for life changes
Most significant milestones will trigger a tax change, says Steber. "Getting married, getting divorced, starting a business, having a child – all of those will change your tax return materially." When in doubt, run the numbers using the withholding calculator again. You can change your W-4 at any time.

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